Article excerpt

Sometimes numbers do lie. Colorado Federal Savings had an efficiency ratio of 744% last year. Yet the Denver mortgage specialist is highly profitable with minimal overhead, earning it the number three spot on our under $100 million ranking, with a 2002 ROAE of 30.08%

The solution to this apparent contradiction lies in the unique structure the thrift uses to generate residential mortgage loans. It uses an approach common among mortgage banks referred to as "net branches."

President Patrick Dalrymple explains that with net branches the branch manager derives his or her profit from the net income of the branch after all expenses and minus a fee paid to the parent company. In principle it operates like a franchise, although in fact all branch personnel are W-2 employees.

Colorado Federal Savings has 11 net branches around the country--several in Colorado, others in Hawaii, Texas, Arkansas, California, and Maryland. This structure results in large number of employees for the bank's asset size (about $47 million as of early June). Whereas in terms of actual overhead, the company is managed by about eight people in the Greenwood Village (Denver) main office.

Further confusing the issue is that the Office of Thrift Supervision, reports CFS' numbers as if it were a traditional thrift. Thus the data for 2002 shows an operating loss. …